August 2013: Appellate Update

by Quinn Emanuel Urquhart & Sullivan, LLP

U.S. Supreme Court Concludes October 2012 Term. The U.S. Supreme Court concluded its October 2012 Term in June with a number of highly publicized cases on issues like race and gay marriage, but equally notable are the Term’s major business decisions. In the fields of arbitration, class action, preemption, and employment law, the Roberts Court continued its striking trend toward interpreting statutes and procedural rules so as to make it more difficult to pursue claims in civil litigation.

Arbitration. In American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), the Court interpreted the Federal Arbitration Act (“FAA”) to make class action waivers in arbitration clauses enforceable even where the cost of bringing a federal statutory claim in individual arbitration exceeds the potential recovery. Italian Colors Restaurant, on behalf of itself and other merchants, sued American Express for violations of the federal antitrust laws, arguing that American Express had used its monopoly power in the charge card market to extract excessive fees from merchants accepting its credit cards. The Court, in a 5-3 decision, reversed the Second Circuit, which had found an exception to the waiver because the costs of bringing the antitrust claim on an individual basis (including seven-figure expert fees) exceeded the potential recovery of only $38,549. The Court thus held that American Express was entitled to compel arbitration on an individual basis pursuant to the agreement between American Express and its customer-merchants. “[T]he fact that it is not worth the expense involved in proving a statutory remedy,” the Court wrote, “does not constitute the elimination of the right to pursue that remedy.”

Class Actions. In Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), the Court reversed a ruling affirming a class certification in an antitrust case where there was an issue whether class-wide damages could be proved. Reversing the Third Circuit, the Court held by a vote of 5-4 that, in applying Fed. R. Civ. P. 23(b)(3)’s requirement that common issues of law or fact predominate over individual facts, a court may not ignore questions at the certification stage just because they also go to the merits of the claim; that the rigorous analysis required at the class certification stage applies to issues of damages as well as liability; and that plaintiffs’ damages model—which assumed the validity of four different theories of antitrust impact, three of which the district court had rejected—fell “far short” of satisfying the predominance requirement. The decision gives defendants a new argument against class certification in any case where plaintiffs are unable to develop a damages model based on a theory of liability that is susceptible to class-wide proof. While the reach of Comcast outside the antitrust context is yet to be determined, the Court has already vacated and remanded, in light of Comcast, three appeals court judgments that had affirmed class action certifications in wage-and-hour and product-liability cases. In contrast to recent decisions increasing burdens on class action plaintiffs, however, Amgen Inc. v. Connecticut Retirement Plans & Trust Funds, 133 S. Ct. 1184 (2013), held by a vote of 6-3 that class plaintiffs in a securities fraud case under § 10(b) need not prove at the certification stage that defendant’s alleged misrepresentations were “material”—an essential element of the underlying
§ 10(b) claim.

Preemption. In Mutual Pharmaceutical Co., Inc. v. Bartlett, 133 S. Ct. 2466 (2013), the Court held that federal law preempts state-law design-defect claims against manufacturers of drugs that are the generic equivalents of FDA approved drugs. Reversing the First Circuit, the Court held by a vote of 5-4 that a $21 million judgment against Mutual Pharmaceutical under New Hampshire law had been improperly granted. The majority found that the state’s design-defect law required the company to alter either the labeling or the chemical composition of the challenged drug and thus conflicted with the Federal Food, Drug, and Cosmetic Act’s requirement that a generic drug use the same labeling as its brand-name equivalent. The Court rejected the First Circuit’s suggestion that Mutual Pharmaceutical could have complied with state and federal law by withdrawing its drug from the market, holding that “[o]ur pre-emption cases presume that an actor seeking to satisfy both his federal- and state-law obligations is not required to cease acting altogether in order to avoid liability.” The decision extended the Court’s earlier decision in Pliva v. Mensing, 131 S. Ct. 2567 (2011), which had found the same kind of conflict preemption under the FDCA for state-law negligent-failure-to-warn claims; the cases leave branded manufacturers, however, subject to such state-law claims under the Court’s previous decision in Wyeth v. Levine, 555 U.S. 555 (2009), where the Court held that branded manufacturers (unlike generic manufacturers) can change their labels under the FDCA.

Employment. In employment discrimination cases last Term, the Court made it more difficult for plaintiffs to succeed on workplace harassment and retaliation claims. Under Title VII, an employer is strictly liable when a “supervisor” commits workplace harassment that results in a tangible employment action. In Vance v. Ball State University, 133 S. Ct. 2434 (2013), the Court, in a 5-4 decision, narrowed the definition of “supervisors” under Title VII to those who are “empowered by the employer” to make “a significant change in employment status, such as hiring, firing, failing to promote, reassignment with significantly different responsibilities,” rejecting the broader definition urged by the plaintiffs that would have defined a “supervisor” as one who assigns a worker day-to-day tasks. In University of Texas Southwestern Medical Center v. Nassar, 133 S. Ct. 2517 (2013), the Court held, again in a 5-4 decision, that a retaliation claim may not proceed unless the plaintiff employee can prove that his employer would not have taken the adverse employment action “but for” a desire to retaliate. The Court rejected, for retaliation claims, the less stringent standard used in some other kinds of employment discrimination actions that allows a plaintiff’s case to proceed if the prohibited ground is merely a “motivating factor” in the employer’s decision.

This Term thus reinforced that, where statutes or procedural rules are ambiguous, the Roberts Court tends to use the tools of statutory interpretation to read them in ways that limit civil litigation. Such decisions, this Term, as in previous Terms, have yielded significant victories for the business community.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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